Chinese Venture Capitalists are Retreating from Silicon Valley’s Start-Up Scene

Rebecca Fannin reported earlier this month at CNBC Online that, “San Jose-based virtual reality start-up uSens was ramping up quickly until late last year when issues over the U.S.-China tech cold war intervened, and the fast-charging company hit a dead end.

“With patented computer vision technology for smart TVs, mobile devices and cars, an experienced team from Apple, Intel, Samsung, Oracle and Amazon, and $27 million in venture funding in the past three years, uSens had sealed a partnership with San Francisco-based Pico Interactive to bring interactive hands gesturing to its virtual reality headsets. The start-up, formed by CEO Anli He and her husband, CTO Yue Fei, had scaled up from their living room and a Kickstarter campaign in 2015 to 60 staff in Silicon Valley, three offices in China and $2 million in revenue.

“Their venture funding in three rounds came from a mix of leading U.S. and China venture funds investing in early stage technologies. Among them were cross-border investor IDG Ventures, Fosun Kinzon Capital, backed by Chinese conglomerate Fosun, and venture funds including Shenzhen-based Maison Capital and Lebox Capital in Beijing.”

The CNBC update added that, “Now uSens faces the prospect of shutting down after failing to raise more capital, despite having a term sheet for a new venture infusion. The start-up’s office was shut down in the U.S., and everyone was laid off except for one salesperson. Remaining staff, including the co-founders, moved to China.

“‘Terrible things were happening,’ said He, recalling the succession of events. ‘Now we are trying to survive.’

She blames fallout from the U.S.-China tech cold war for investor reluctance, both from China and American funds, to put more money into her high-tech start-up. ‘It was too easy to get capital from China-backed venture capitalists that had investment branches in Silicon Valley and liked to invest in cross-border deals at pretty high valuations,’ she noted, adding that ‘lots of Chinese investors withdrew from the U.S., and then U.S. investors decided not to invest, too,’ in U.S.-China-rooted start-ups.”

Ms. Fannin explained that, “Issues over national security threats and competition with China for future technology leadership are stopping the flow of China investment in tech companies. In the process, stifling cross-border U.S.-China collaboration that has long fueled next-generation innovations is being stifled.

The outbreak of the coronavirus is taking its toll, too, as travel to and from China for firms active in the Mainland is being restricted.”

The CNBC article pointed out that, “Venture capital deals in the U.S. with at least one China investor fell to 163 deals and $6.5 billion of investment in 2019, according to private equity data tracking firm Preqin in London. That’s down from 236 deals in 2018, which had amounted to $10.8 billion. This China-to-U.S. venture boom started in 2014, when 157 deals totaling $2.7 billion were tallied up and grew rapidly.”

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